Answer to Question #244242 in Accounting for samantha

Question

Directions: Answer the following questions with the most correct answer whether the selection is in multiple-choice or supply the answer.

Cost of Goods Sold, (COGS), can also be referred to as cost of sales (COS), cost of revenue, or product cost, depending on if it is a product or service. It includes all the costs directly involved in producing a product or delivering a service.

5. Which of the following is the correct formula in finding COGS or COS?
a.The COS for manufacturing entities is zero because of its value in deflation.
b.The COS for merchandising entities is goods available for sale minus the ending
amount of inventories.
c.The COS for service entities is service available for sale plus the beginning
service inventories.
d.The COS for service entities is equal to the adjusted market selling price.

6. Explain why the three items you have not chosen above are incorrect.

Answer 1

Solution:

5.). The correct formula in finding COGS or COS is b. The COS for merchandising entities is goods available for sale minus the ending amount of inventories.

The COGS formula = Beginning inventory + Purchases = Goods available for sale – Ending inventory = COGS.

 

6.).

a. The COS for service entities is service available for sale plus the beginning service inventories is wrong because to derive the service available for sale, you add beginning inventory plus net purchases.

b. The COS for manufacturing entities is zero because of its value in deflation is wrong because the COS for manufacturing entities can never be equal to zero.

c. The COS for service entities is equal to the adjusted market selling price is wrong because COS is not determined by the market and cannot be equal to the market price but the costs of production and inventory are what determines COS.